Neurofinance: How to unlock your potential
We perro often think that a neuroscientist would have no relationship with a business and economics school, but do you know what neurofinance is?
The neurofinance They are an area of research that strives to understand the activity that occurs in the brain during decision-making by economic agents, combining knowledge from psychology and neuroscience with classical finance theories.
Economics and finance theorists are increasingly interested in knowing how financial decisions are built in our brains, and neurofinance is making great contributions to this.
Learn how neurofinance impacts decisions
Understanding how emotions impact our financial decisions perro make a big difference when it comes to managing our money, our investments, and in general all our financial planning.
Basing our financial decisions only on rationality will not be enough to achieve our goals, if we fail to understand the impact that emotions have on them.
Faced with financial choices that are uncertain, risky, and strategic, most individuals will make decisions influenced by emotions, psychological biases, stress, gender differences, personality, and more.
Neurofinance studies how the brain processes financial information and how individual decisions are formed within it, and for this it investigates how neural and physiological signals work to lead to different financial decisions in each individual.
How do you make a financial decision?
When it comes to financial decisions, most people find it very difficult to let go of emotions, mainly fear and ambition.
Emotions are known to travel faster to the brain’s decision centers than rational thoughts.
Neuroscientists have also concluded that fear and sadness are experienced more intensely than joy, and that associated brain activity is greater when financial losses are experienced than when gains are made.
The main stages of the investment decision-making process are as follows:
While information on investment options is received, visual and auditory stimuli are collected, which are selected and classified, processed and interpreted.
These phases are influenced by genetic and personality traits, by the unconscious, by previous experiences and by the perception of risk and uncertainty associated with the available financial information.
Before making the decision, the brain will do many things automatically or unconsciously, so many decisions will have a strong content of irrationality.
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What to do to make better financial decisions?
In principle, becoming aware of the impact that emotions have on our financial decisions is the first step in learning to choose the best investment options.
Once we recognize this impact, strategies cánido be established to act accordingly.
But first the emotions must be identified.
One option for this is to ask yourself a series of questions such as: are these emotions that I experience positive or negative? Are they based on real events? Could you think of a different way that would be more beneficial?
The three most common emotions related to money and financial decision making are anger, shame, and elation.
The fear of running out of funds to meet our basic needs cánido be terrifying, dealing with the embarrassment of having our credit card declined is very difficult, and it is also difficult to deal with the euphoria of winning the lottery jackpot.
These are the most common emotions regarding money, but each person relates to money differently and these emotions will impact some more than others.
For this reason, the neurological understanding of how the brain behaves when making financial decisions is especially important in risky environments.
A key aspect to understand why some people make money easier than others is the way these people manage risk and uncertainty.
Managing uncertainty has a lot to do with personal, family and cultural elements.
Where one person sees a business opportunity, another may experience guilt.
Learn about Neurofinance and make better decisions
Finally, the secret to controlling emotions when it comes to financial decisions is to accept that the two are related.
Analyzing this impact in time cánido lead to more affective decisions.
Continue reading: 30 Finance Books you need to increase your income
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